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How to buy a house at auction without cash

Auction purchases are fast becoming an increasingly popular way to buy a home, plot of land, or investment property. The diverse range of property types available offers the chance for potential buyers to find a bargain, or acquire an unusual lot that meets all of their requirements. However, many people may initially be swayed away from the idea of purchasing by auction due to difficulty in procuring the funds to complete the sale. Contrary to what some may believe, you do not need to have the cash ready upfront to buy an auction property and there are alternative ways that you can finance your purchase. 

If you’ve got your eye on an auction lot but aren’t sure about how to buy it without using cash, this article will cover the option of using Together auction finance to help you secure your dream property, but if a mortgage is a more suitable option for you, then we recommend you read our ‘can you mortgage an auction property?’ blog. Of course, some auction properties may not be mortgageable which is where alternative finance options can help. Keep reading as we discuss more about this short-term auction financing. 

What is property auction finance?

Auction finance refers to a bridging loan. It is short-term and expected to be repaid within a strict timescale, the purpose of using it is to cover the initial purchase price of the auction property. This can be a great option for those who will be able to get the funds to pay the lump-sum within 12 months of placing the winning bid. This helps to make auctions more accessible to a wider variety of buyers, rather than just developers and established investors. 

This option is ideal for those who are selling a property and will use the funds to pay the lump sum after the completion of the sale, or for those who are able to secure a longer-term loan such as a mortgage but are awaiting application approval. 

You’ll also need what is called an ‘exit strategy’ to take out specialist auction finance. This isn’t as daunting as it sounds, and simply means that the lender will need to be satisfied with the way that you intend to pay off the loan, this could be through ‘flipping’ the property, selling an existing property, or securing longer-term finance. You’ll be able to first talk with a financial adviser to help you figure out if your intent is viable. 

What happens after taking out auction finance?

As with any bridging loan, you will be expected to pay interest on the initial amount. This can happen in one of two ways. Either, you’ll pay monthly instalments towards this interest – an option that you can choose to bundle any fees onto, or you’ll add any interest onto the final lump sum so that you don’t need to make any payments in the interim if you plan to pay off the full amount at one time. With Together property auction finance, this option is available if you’re going to be living in the property, meaning you won’t have to pay monthly instalments alongside your existing mortgage.

This method of payment helps to reduce any stresses you may have about the fast-moving pace of auction sales, as typically you’d be expected to pay within one month of the gavel falling which can be a problem for those who need a mortgage or are selling a property to finance a purchase. It is important to note that failure to repay your loan can result in repossession of your property.

What are some of the benefits of using auction finance?

Auction finance lenders are often a viable alternative to mortgage lenders as they can lend on a greater variety of properties, including ‘unmortgageable’ lots. Often, they can also provide finance to a wider variety of buyers such as the self-employed or retired. To help highlight some of the benefits of using short term auction finance, we’ve listed some common themes between the different lenders below.

There is flexibility regarding your income stream

Many mortgage lenders are strict about who they will lend to and look closely at income streams. This often results in penalising certain potential homeowners, including the self-employed, those with credit history, or those claiming benefits. Auction finance lenders are typically more open minded, and you’ll have a greater chance of being considered for auction finance even if you are:

  • Self-employed (part or full time)
  • Working more than one job
  • Claiming a pension or receiving benefits.

In many cases, credit score isn’t taken into account and you can be pre-approved for a loan without affecting your current score, and loans will be secured against the value of your purchase. 

Flexibility on the types of property you can buy

Property auction purchases are not solely for residential purposes, and securing a loan on an investment property or commercial space can be more difficult. Auction finance lenders recognise the need to be flexible on the type of property you want to purchase to ensure you can obtain your dream space, whether that be a home, plot of land, or unmortgageable property. Below are some of the property types you could secure a loan against:

  • Properties with non-standard construction
  • Properties in poor or uninhabitable condition
  • Properties requiring conversion
  • Land with or without planning permission.

Fast turnaround on bridging loans

Because auctions operate at a fast pace, funds from lenders can usually be made available within 7-10 days of application – a much quicker option than a typical mortgage application. This ensures that you’ll be able to purchase your dream property with more ease, without worrying about getting your finances in order to meet the deadlines set out by the auction house.

Learn more about alternative financing options for your SDL Property Auctions purchase

If you’re ready to purchase an auction property but need a helping hand with your finance, contact a member of our team or visit our partner page at Together to find further information. 

As a disclaimer, we do receive a referral fee from Together if you decide to use their services. This means we will receive 1% of the initial loan value. However, you are not under any obligation to use Together to provide you with these services, and we accept finance options from other providers on our property auctions should you wish to choose a different company.